Ask the Experts September 11, 2018

(b)lines Ask the Experts – Can Tribal Governments Sponsor 403(b)s?

“I was recently hired to work with an entity that is a Native American Tribal Government. Can it sponsor a 403(b) plan?”
Reported by

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

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Typically, no, with limited exceptions. The reason for this is that tribal governments are generally treated just like any other governmental entity for retirement plan purposes. As you may be aware, governmental entities (other than public schools with students and faculty) may not sponsor 403(b) plans, so the same restriction would apply to a tribal government. 

Therefore, any public schools that are associated with the tribal government would be treated as public educational organizations, which, by definition, may sponsor 403(b) plans. Thus, a tribal government may not sponsor a 403(b) plan for its employees, but an affiliated school could do so for its employees.

Finally, there is a grandfathering rule that allows tribal governments who purchased annuity contracts in a plan year beginning prior to January 1, 1995, to maintain 403(b) plans with respect to such contracts; however, no new contracts can be purchased.

We note that, unlike a state or local government, a tribal government may establish and sponsor a new 401(k) plan. 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
Compliance September 10, 2018

Another Hit to Retirement Plan Investors: Financial Transaction Tax

An analysis shows a new bill introduced in the Senate would result in a significant financial hit to retirement plan investors. Modern Markets Initiative is pushing back on a tax provision in the bill.

Reported by

The Inclusive Prosperity Act of 2017 has been introduced in the Senate and includes a financial transaction tax (FTT).

According to Modern Markets Initiative (MMI), the FTT would be applied to every stock traded, including a 0.5% rate on equity, a 0.1% rate on debt and a 0.005% rate on derivatives. MMI, an education and advocacy organization, which is strongly opposing this tax, has done an analysis of what its costs would be for pension funds and all investors.

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While MMI’s analysis focuses specifically on public pension funds, an op-ed by CEO Kirsten Wegner notes that the tax will affect all defined benefit (DB) plans, individual retirement accounts (IRAs), defined contribution (DC) plans and individual investors.

For example, using asset allocations in 2015 for the California Public Employees’ Retirement System (CalPERS), as well as published data about its trades, MMI calculated the FTT would be $508,374,705. “That’s not a typo—CalPERS and the hardworking public employees it invests for would have paid more than half a billion dollars in tax in 2015 alone,” Wegner writes.

MMI’s analysis also finds the Federal Thrift Savings Plan would be hit with roughly $250 million in annual fees, and a hypothetical local public pension fund portfolio with $2 billion in assets would be on the hook for an additional $4 million in an average year.

For each pension fund evaluated in the report, analysts have provided detail on the asset class exposure, calculation methods, spread costs and other considerations related to that institution.

“Our detailed analysis shows that the FTT’s negative impact on pensions and institutional investors would be substantial in terms of real dollars,” says Wegner. “Policymakers must now consider how any FTT would ultimately boomerang back on individual investors and pensioners, essentially cutting into their retirement income and savings.”

She adds: “One of MMI’s key principles is transparency, so it was very important for us to share our full analysis with the public. We fully intend to be the industry’s voice when it comes to education and pushing back on the FTT.”

 

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